Topic: Big Business Objective: – Student’s will identify management and business strategies that contributed to the success of business tycoons such as Andrew Carnegie and John D. Rockefeller. Warm-up: What is the difference between horizontal integration and vertical integration? (Hint: pg. 448)

Big Business: Captains of Industry or Robber Barons?

Captains of Industry or Robber Barons….YOU decide! Andrew CarnegieJohn D. Rockefeller

Andrew Carnegie Immigrated from Scotland at age 12. Worked for the railroads; became a private secretary to the superintendent of Pennsylvania Railroad. As a reward, he was given a chance to buy stock. He started investing his money and by 1865, he left the r.r. and started his own steel mill.

New Business Strategies Carnegie’s success was due in part to management practices that he put in place. – 1. He continually searched for ways to make products cheaper. He perfected machines and accounting systems. – 2. He attracted talented people by offering them stock in the company and encouraged competition among employees.

He also attempted to control as much of the steel industry as he could. He did this through vertical integration – buying out his suppliers like coal fields, freighters, railroads, etc. And through horizontal integration – buying out the competition. Through buying out his competition and his suppliers, he controlled almost the entire steel industry. He sold his business in 1901 to J.P. Morgan for $480 million.

Consolidation Many industrialists pursued horizontal integration in the form of mergers. Mergers usually occurred when one company bought out the stock of another. A firm that bought out all its competitors could achieve a monopoly, or control over its industry’s production, wages, and prices.

One way to create a monopoly was to form a holding company, a corporation that did nothing but buy out the stock of other companies. Banker J.P. Morgan created the world’s largest corporation when United States Steel (a holding company) bought out Carnegie Steel in 1901.

Social Darwinism Carnegie attributed his success to hard work, shrewd investment, and innovative business practice. Others’ attributed it to a new theory called: Social Darwinism. This is how they explained why some were so wealthy, while others remained poor. They believed “natural selection” weeded out less capable people, therefore the rich were the most adapted and capable. They saw riches as a sign of God’s favor and that the poor must be inferior and deserved what they got in life.

J.P. Morgan

Standard Oil Company Others like John D. Rockefeller took a different approach to achieving a monopoly: they joined with competing companies in trust agreements.John D. Rockefeller Participants in a trust turned their stock over to a group of trustees – people who ran the separate companies as one large corporations. They were not legal, but used anyway. Rockefeller used a trust to gain control of the oil industry in the US.

In 1870, Rockefeller’s company refined 3% of US oil. By 1880, they refined 90%. How? – Rockefeller paid his employees poorly, undersold his competition, and when the competition went out of business, he raised prices above the original levels. Tactics like these earned industrialists the nickname, “Robber Barons.”

Many industrialists like Carnegie and Rockefeller were also philanthropists, or people who give money away for the good of mankind. “It will be a great mistake for the community to shoot the millionaires, for they are the bees that make the most honey and contribute the most to the hive even after they have gorged themselves full.” - Andrew Carnegie

Sherman Antitrust Act The government was concerned that the growing power of corporations would stop free trade, so they passed the Sherman Antitrust Act in It made it illegal to form a trust that interfered with free trade between states or with other countries. It was poorly written and all 8 cases brought against corporations were thrown out. The government eventually gave up trying.